WikiLeaks cables: Moscow mayor presided over 'pyramid of corruption'

WikiLeaks cables allege Moscow mayor Yuri Luzhkov oversaw a system in which almost everyone was involved in corruption or criminal behaviour. Photograph: Ilya Pitalev/EPA

The US ambassador to Russia claimed that Moscow's veteran mayor Yuri Luzhkov sat on top of a "pyramid of corruption" involving the Kremlin, Russia's police force, its security service, political parties and crime groups.

The 74-year-old has subsequently been sacked as mayor by President Dmitry Medvedev, after the Kremlin-controlled media broadcast allegations of corruption aimed at him and his billionaire wife, Yelena Baturina, who heads a construction company called Inteko. The couple have vehemently denied the accusations as "total rubbish" designed to make Luzhkov "lose his balance".

In a leaked secret cable sent in February, the US ambassador John Beyrle gives a forensic account of Moscow's "murky" criminal world, alleging a shadowy connection between bureaucrats, gangsters and even prosecutors.

According to Beyrle corruption in Moscow was "pervasive". "Luzhkov is at the top of the pyramid," he claimed. He told the US state department: "Luzhkov oversees a system in which it appears that almost everyone at every level is involved in some form of corruption or criminal behaviour."

Russia's well-developed system of bribe-taking was ubiquitous, Beyrle said. In the absence of laws that worked, Luzhkov – as well as other mayors and governors – paid off "key insiders in the Kremlin". Officials had even been spotted entering the building carrying large suitcases, presumed to be "full of money".

The ambassador wrote his cable in response to speculation that Luzhkov, the capital's charismatic mayor since 1992, was about to lose his job. When Medvedev ignominiously dismissed him in September, the Russian president said he had lost confidence in Luzhkov.

Most analysts believe the firing had little to do with the allegations of corruption but was linked to a power struggle between Luzhkov and Russia's federal leadership, which Luzhkov eventually lost.

In a section called "Background on Moscow's criminal world", Beyrle asserted bluntly: "The Moscow city government's direct links to criminality have led some to call it 'dysfunctional', and to assert that the government operates more as a kleptocracy than a government".

"Criminal elements enjoy a 'krysha' [a term from the criminal/mafia world literally meaning 'roof' or protection] that runs through the police, the federal security service (FSB), ministry of internal affairs (MVD) and the prosecutor's office, as well as throughout the Moscow city government bureaucracy.

"Analysts identify a three-tiered structure in Moscow's criminal world. Luzhkov is at the top. The FSB, MVD and militia are at the second level. Finally ordinary criminals and corrupt inspectors are at the lowest level."

Under this system, all businesses in Moscow were forced to pay bribes to law enforcement structures, in a virtual parallel tax system: "Police and MVD collect money from small businesses while the FSB collects from big businesses." An FSB krysha was the most sought after, Beyrle said, with the FSB protecting Moscow's top organised crime gang.

This sleaze went all the way to the top of Russian power, Beyrle said. Bribes were distributed upwards under the "power vertical", Vladimir Putin's bureaucratic hierarchy. He quoted one source who said: "Everything depends on the Kremlin … Luzhkov, as well as many mayors and governors, pay off key insiders in the Kremlin."

The same source alleged that officials went into the Kremlin "with large suitcases and bodyguards", and speculated that the "suitcases are full of money". Another source disagreed. He pointed out it was simpler to pay bribes "via a secret account in Cyprus" – an offshore route popular with rich Russians.

The ambassador offers the most detailed and apparently authoritative account so far of corruption in the Russian state and its security agencies. He cites Transparency International's 2009 survey which confirms Russia as the world's most corrupt major economy. The report estimates bribery costs Russia $300bn (£190bn) a year, about 18% of its gross domestic product.

Beyrle also reported allegations about Baturina, who heads the largest construction company in Moscow. After Luzhkov entered office, his wife became Russia's wealthiest woman, amassing a fortune put at $1.8bn. Since her husband's sacking she has spent most of her time abroad, with the couple's teenage daughters moving to London.Luzhkov's dubious friends and associates, the US alleged, included Vyacheslav Ivankov – a recently murdered and notorious Russian mafia boss known as Yaponchik – and other "reputedly corrupt" Duma deputies. "[Source removed] said that the Moscow government has links to many different criminal groups and it regularly takes cash bribes from businesses."

According to Beyrle, the same system of bribery worked in Russia's provinces: "The governors collect money based on bribes, almost resembling a tax system, throughout their regions." As in Moscow, businesses paid off the FSB, the interior ministry and the militia who "all have their distinctive money collection systems". (Moscow police heads also reportedly had a "secret war chest of money … used to solve problems that the Kremlin decides, such as rigging elections".)

Deputies in Russia's parliament generally had to buy their seats in government, Beyrle's cable suggested. "They need money to get to the top, but once they are there, their positions become quite lucrative money-making opportunities."

His allegations are likely to be most embarrassing for the Kremlin, after a high-profile campaign by Medvedev against corruption. So far it has shown few results.

Another cable sought to lift the lid on Luzhkov's business empire, much of it acquired using city funds to invest in "less than transparent" projects sealing agreements with former Soviet countries including Moldova, Uzbekistan, Georgia, Armenia and Azerbaijan.

The projects deliberately promoted Luzhkov's "nationalist foreign policy", it reported. Luzhkov channelled cash to separatist pro-Russian movements in Ukraine and the Baltics. "This was 'at the behest of the Russian government, thereby giving the government of Russia plausible deniability when accused of funding certain political parties."

He also struck deals in the separatist regions of neighbouring countries, including South Ossetia and Abkhazia in Georgia, and Transnistria in Moldova. In Kosovo he used Moscow city funds to build housing for ethnic Serbian refugees, while in Bulgaria he bought beach resorts on the Black Sea for city hall staff.

"The Moscow city government has cultivated its influence in far-flung Russian regions as well as in foreign countries, ostensibly for the benefit of its citizens but to a greater extent for the city's well-connected business elites," the cable concluded.